NHL faces a larger battle with PA now that it has mistakenly voided the Kovalchuk contract

By they I mean the NHL league office. And by what I mean the disputed, and arguably illegal (according to the collectively bargained labour agreement), Ilya Kovalchuk (left) contract. Did the NHL actually think that the holes the size of battleships in the labour agreement would never be exploited? One step forward and two steps back…eh Mr. Bettman.

Now I don’t wholeheartedly blame the Bettman thevancouversunistration for this latest blunder (as much as I would like to considering the bungling that has been going on down at the New York offices all these years). There is no way you can anticipate every little nuance in any rule, policy or law. There are smart people out there who make a strong living out of puncturing holes in agreements. This is just another occurrence.

When the NHL locked out the players, and cancelled the 2004-05 season, the goal for the league and its governors was cost certainty and they believed that they had succeeded when the players capitulated on most points. This sent the association spiralling into a state of confusion from which they are just beginning to crawl out. The players have managed to entice long time MLBPA leader Donald Fehr into assisting them, and as long as Fehr is heading the association the players are on solid ground.

Cost certainty however lasted about one year. Teams began to find loopholes in the salary cap rules and began to take advantage of them. Long term contracts are the best way for teams to exploit the holes—much to the chagrin of the league. Surprisingly the economically (and oftentimes intelligently) strapped New York Islanders were the first team to manipulate the system signing goaltender Rick DiPietro to 15 year contract at $4.5 million per year. (As I stated there is not much in the intelligent quotient area for this organization).

This began the inordinately long contractual agreements negotiated by teams and players. Suddenly teams were signing their top players to these deals. Henrik Zetterbeg with Detroit and Mike Richards with Philadelphia signed 12 year deals, Vincent Lecavalier with Tampa Bay signed an 11 year deal, and Alexander Ovechkin with Washington signed a 13 year deal. (The Capitals also signed Niklas Backstrom for 10 years). These long term deals may have irritated the league office but the annual salary for these players stayed reasonable for the length of the contract.

Then the teams pushed the envelope a little further. Roberto Luongo signed with Vancouver for 12 years but the salary is miniscule over the final three years. Chris Pronger signed a seven year deal with the Flyers but the final two years are at the league minimum. And Marion Hossa signed a 12 year deal with Chicago with the final four years at or around the league minimum. The league approved each of these deals perhaps figuring that these contracts were the extreme—that teams couldn’t, or wouldn’t, push that malleable barrier any further. The Kovalchuk contract pushed that barrier right over the edge of the cliff.

So why do teams sign players to such lengthy contracts? The reasons include cost certainty–they have control of their better players for the length of the contract—and is a creative way around the salary cap rules. For example Hossa’s contract is consistent for seven years at $7.9 million per year, but then totals $7.5 million for the final five years. The average annual salary over the lifetime of the contract is the cap number for the team—therefore Hossa’s contract carries a $5.233 cap hit, much lower than the annual salary paid out during his prime years. (All figures taken from nhlnumbers.com).

Similar creativity was used to create the contracts for Luongo and Pronger. All three of those contracts were approved by the NHL. The Kovalchuk contract was simply the next step. So when the NHL stepped in and voided this contract they were effectively saying… “Enough. We’ve let you play around with the rules a little but this time you have gone too far” The problem now becomes the reasoning for the league’s decision. If they stick with their original argument—that it breaks the “spirit” of the CBA then they will lose. They need to prove, with facts and figures, that the deal actually went outside the salary cap rules.

The New Jersey Devils are naturally arguing that they did not break any rules–that each segment of the contract falls within the salary cap boundary. The NHL is looking at putting a halt to these “retirement contracts,” and has decided that the Kovalchuk deal pushes the argument of reason beyond an acceptable limit. But when dealing in legal terms the issue becomes…what is that acceptable limit. If it is not illustrated in plain legal terms that these particular segments of the contract violate the salary cap rules then the league does not have a basis from which to void it. They cannot use “spirit” as a defence.

The Devils believe that their lawyers are smarter than the league’s lawyers and have effectively exploited a vulnerable area of the signed agreement. They went ahead with the news conference announcing the signing of Kovalchuk even though they had received word from the league office that the contract was being voided. The Devils simply ignored the league’s insistence that the conference be called off and chose to challenge the league in this regard. However, the Devils aren’t the ones directly challenging this decision. They have publicly stated that they will not contest the ruling.

No, the Devils are going to leave the fight in the hands of the players association. The Devils don’t want to appear to be fighting against its own board of governors and against a salary cap for which they had a hand in creating. They will leave this fight for the players association—a fight that could precipitate the next CBA battle between the ever strengthening players association and the somewhat reeling league office.

While the previous battle cost Bob Goodenow his job as head of the players association—as the players went against his leadership and caved– this battle may cost Bettman his job. Fehr is much more accomplished at winning labour battles and he may be the one capable of finally pushing Bettman over the edge of the cliff.

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